Will Trump’s Economic Gamble Work? | 4.27.25

After starting the week with another nosedive, the stock market rebounded as President Trump softened his approach to both tariffs and the Federal Reserve. The shift has some economists elevating their forecasts for the year, while others remain skeptical of the America First policies.
In this episode, we take the pulse of the economy as the Trump administration works to revitalize industry and stave off a potential downturn amid trade and stock turbulence. I'm Daily Wire Editor-in-Chief John Bickley with Georgia Howe.
It's Sunday, April 27th, and this is a weekend edition of Morning Wire. A portion of this interview was aired earlier this week.
Joining us now to discuss the latest on the market and how trade deals and the Fed factor in is economist E.J. Antony of the Heritage Foundation.
E.J., thank you so much for joining us. Oh, my pleasure.
Thank you for having me. Look, we've seen a clear de-escalation from the Trump administration in recent days.
There's been a lot of public negotiating going on from Trump and his team, including some mixed messaging over the last few weeks. First, what are you seeing right now with Trump trade policies? Well, a couple of things.
One is, I think, a resolution to a lot of that mixed messaging that you mentioned, right? I mean, it was frankly chaos to start where you had not only different members of the administration contradicting each other, but sometimes in the context of a single interview you would have individuals contradicting themselves a lot of that is getting resolved not all of it but a lot of it so that's really good it's a very welcome development to have trump and besant really taking the lead in terms of negotiations so less so uh greer navarro Lutnik. In terms of the de-escalation, I think what we're looking for there is essentially agreements one by one just getting hammered out and eventually signed.
It looks like trade deals reducing tariff and non-tariff barriers, which is very, very important, that we include the non-tariff part of this as well. Oftentimes, it's worse than the tariffs themselves.
And so as those deals get done, as the details get ironed out, we can look for more free trade, not less. We can look for fairer trade.
In other words, not only are American consumer markets still open to foreign producers, but finally, foreign consumer markets will be open to our domestic producers. Now, J.D.
Vance sat down with officials from India this week. What are we seeing develop on that front? Again, we're seeing this movement to where other countries are willing to start knocking down some of their tariff rates and also their non-tariff barriers.
That includes things like quotas, but also includes some more abstract things that you might not think they would affect international trade, like currency manipulation. But that's been a big way that a lot of these nations have effectively worked around American tariffs and also given their exports an artificial advantage in American markets.
So by cracking down on these different trade abuses, also abuses of things like country of origin laws, that's been a big one with China and Canada, where China sends stuff, they dump product in Canada, it gets repackaged, relabeled and reshipped into the United States. You know, those kinds of abuses as they get cracked down on, I think we're going to see again, more free trade, not less.
And you're going to see a ratcheting down of not just the rhetoric, but the reality around tariffs. There's been a lot of focus on China by the administration for good reason.
And we've seen some walkbacks in terms of tariffs on key imports like iPhones and other important tech products. What is the China policy right now from the Trump administration? Well, we're still seeing a lot of carve-outs, frankly, which is going to also help blunt the effect of these tariffs initially.
I think, look, you're walking a tightrope here. On the one hand, if you really want to bring the pain to Beijing, then you don't have any exemptions.
You have even higher tariff rates. We're talking 400% on anything and everything coming in from China.
That's a double-edged sword.

The flip side there to that coin is that you're also going to bring a lot of pain to the American consumer because not all of that tariff is going to be paid for by the Chinese producer. Some of it is going to fall on American consumers.
Not all, but some of it will. And so since we're already in a cost of living crisis, courtesy of what the Biden administration left us, we want to minimize the pain on the American consumer while maximizing the pain on the Chinese Communist Party.

And so right now we do have a very high tariff rate, well over 100% on Chinese goods.

But again, we have a lot of carve outs on it regarding semiconductors, regarding different electronic components. So it remains to be seen what that's going to look like in the coming days.
After the president said that he's not interested in removing the Fed chair, the stock market surged this week. Are there signs of more confidence now in the approach of the Trump administration or not? Well, at the end of the day, markets really hate uncertainty, full stop.
Even if you're going to get bad news, if it's at least certain, you can prepare, you can plan, whether on the consumer side or the firm side, it doesn't matter. So the real problem has been the uncertainty.
Going back to what we started talking about with tariffs, where you have different members of the administration saying different things, that creates unneeded uncertainty. The way these tariffs were rolled out, quite frankly, created a lot of unneeded uncertainty.
Instead of just having pain overseas, it was a lot of pain here at home in our financial markets. And sure enough, as you see different pieces of that uncertainty resolved, the thousand-point drop in the Dow is reversed and we get a thousand-point swing to the upside.
And scarily, those thousand point swings have become the norm on basically a daily basis for the Dow. But if you look at something like the whole conversation about whether Trump will remove Powell, this is, I think, a good illustration.
The market doesn't really like Jerome Powell, but the idea of removing him creates a tremendous amount of uncertainty. And that's the last thing markets need right now on top of the uncertainty they already have.
How important is this tug of war between Trump and Powell? For example, how directly are the Fed's actions tied to the markets? Well, unfortunately, the Fed really has just been putting politics before policy. They talk about how they're data dependent.
As far as I can tell, the only data they're really paying attention to is whether the president is a Republican or a Democrat. I mean, there was absolutely no empirical justification for the rate cuts that they instituted right before the election last year.
That was a blatant move of election interference, in my opinion. And now, despite the data being even more favorable today for a rate cut, they're refusing to do it.
It makes absolutely no sense. This is the same Jerome Powell who, for example, when he was up for renomination, said a 75 basis point hike, or in other words, a three quarter percentage point increase in interest rates.
That was off the table, he said. As soon as he was confirmed, he delivered four of those jumbo sized rate hikes in a row.
And it's also worth pointing out, you know, not only is Jerome Powell blatantly political, but also we need to understand that just because the Fed makes a move doesn't mean the market will follow. When the Fed cut interest rates last year, again, right around the election, we saw 100 basis points of cuts.
And then the yield on treasuries moved exactly the opposite direction it went up 100 basis points so as markets increasingly don't believe the fed whether that's looking at inflation predictions or employment predictions what the fed does is mattering less and less and so markets i think are much more today focused on what's happening with tariffs what's happening with the tax cut cut package. Is that actually going to get across the finish line? Because don't forget, that's 10 times the size of the tariffs if we're looking at impact on the consumer.
You also have a lot going on in terms of the president's deregulatory agenda. It remains to be seen whether or not that's going to get across the finish line.
So there's a whole lot up in the air right now. And although the Fed is one of those balls being juggled by the market in the air right now, it's not the only thing.
And I would say it's not even the biggest. And what is going to impact that the most? We've obviously had these doge initiatives and the downsizing of the federal workforce.
But in the end, a lot of this is like a drop in the bucket. What factor is going to have the biggest impact on all of this? I think it's going to be a combination of getting the spending down, but also the revenue up.
How do you get the revenue up? Look, we have to remember the lessons from the Laffer curve. Speaking of which, Dr.
Laffer and Dr. Brian Dimitrovich just recently put out a great book called Taxes Have Consequences and the empirical analysis in there is absolutely immaculate, where they explain in great detail how the reductions in an income tax rate, particularly the top marginal tax rate, results in not less tax revenue, but more.
And the reason for that is because you grow the tax base and you essentially increase economic activity by reducing the marginal tax rate. And so the lower tax rate actually yields more and not less tax revenue.
And it's very clear throughout the history of the income tax that's what happens because we're on the wrong side of the Loeffer curve in terms of maximizing revenue. So getting this tax package through Congress onto the president's desk, getting his signature is absolutely imperative.
It'll grow the economy. It'll increase tax revenue, which will help put downward pressure on the deficit.
But then also cutting the spending is an absolute must. And just to put in perspective how much the deficit is a spending problem and not a revenue problem, if Biden had come into office and simply done nothing, in other words, allow all the one-time emergency COVID measures to expire, allow the budget to return to the 2019 levels, and then simply add no new spending, allow existing spending on its current growth trajectory, things like Medicare, Social Security, Medicaid, allow those things to continue growing at the normal pace.
But don't add any discretionary spending, no infrastructure bill, no CHIPs bill, no IRA, etc. We'd have a balanced budget today.
So you can't tell me we have a revenue problem. We have a spending problem.
Final question on the long-term vision for the Trump administration. This onshoring of more production here, the sort of leveling out of tariffs at least, which seems like the besant goal now.
Do you think this will work in the long term? How long does this kind of agenda actually take to see results? It'll definitely work in terms of the last part of that question, how long. It depends on the industry.
Unfortunately, I can't give a blanket assessment because it is so industry specific. If you're talking about something like building a new cracking tower at a refinery, that's a billion-dollar investment that's going to take at least five years to build, and that's after you start breaking ground with essentially a fast-tracked regulatory process.
In some cases, you're looking at many, many years. In other cases, you could be looking at as little as six months because sometimes we already have the infrastructure in place and it's just been mothballed.
So the time is going to vary tremendously from industry to industry.

In terms of how this actually gets done, though, tariffs, are they necessary? Yes. Are they sufficient? No.
We need to not only counter the tariff and non-tariff barriers to trade that other nations have imposed. We need to not only offset things like the value-added taxes abroad and the currency manipulation abroad, but you also need to reform our tax code and our regulatory state.
You need to not just reduce marginal tax rates, but you also need to change the fact that our tax code provides an incentive to move a factory out of San Antonio, Texas, across the border into Mexico, produce stuff there, and then ship it back here to the United States. We literally give a tax incentive for that.
So get rid of that. Replace it with something like a border adjustment tax where we only tax imports and not exports.
At the same time, get rid of the bureaucratic red tape, get rid of the massive regulatory costs that are imposed upon our manufacturers, which typically cost the manufacturer about as much per employee in regulatory compliance costs as they're already paying that employee in terms of annual salary. In other words, a $50,000 employee costs $100,000 once you factor in the regulatory costs.
That all needs to be reformed. A lot of our wounds are self-inflicted.
So we need to not only address the problems that are imposed by foreign producers and foreign governments. We also have to address the problems that have been imposed by our own government here at home.
Well, some heavy lifting ahead of us for sure,

but the administration says they're up for it.

EJ, thank you so much for talking with us.

Yeah, absolutely.

My pleasure.

That was economist EJ Antony with the Heritage Foundation.

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